EDB: Kazakh government's anti-crisis measures to support economic activity, limit balance of payments difficulties, and reduce inflation until the end of 2016
Almaty, 15 February 2016. The government of Kazakhstan takes active anti-crisis measures to support economic activity, limit balance of payments difficulties, and reduce inflation by the end of 2016. These are the conclusions presented in the preliminary issue of The CIS Macromonitor published by the Research Department of Eurasian Development Bank (EDB).
EDB experts point out that the global economic crisis, which evolved throughout 2015, had a significant impact on Kazakhstan's economy: export prices went down, the trade partners' demand was weak, the dollar's appreciation in the global market affected the exchange rate of the national currency, and certain difficulties with public revenues emerged. In 2015, GDP growth slowed down to 1.2%, compared to 4.3% in 2014. The unfavourable external environment had a strong impact on industries. In this situation, agriculture, construction and some service sectors became the main drivers of growth. They were supported with the government's anti-crisis measures aimed at stimulating consumer and investment demand.
Affected by external shocks, Kazakhstan saw certain difficulties with its balance of payments. The country's current account had a negative balance. The situation was exacerbated by the growing speculative demand for foreign currency. In this difficult situation, the balance of payments was supported over the past year by the government's wise macroeconomic policy, including the management of the country's international reserves, the National Fund, and foreign debt. Nevertheless, the devaluation of many developing countries' currencies, including the Russian rouble, made it necessary to adjust external imbalances with the nominal exchange rate. The transition to a flexible exchange rate policy was accelerated and made in August 2015. The subsequent devaluation of the tenge and recovery of the country's competitiveness in foreign markets helped to support exporters and domestic produces and to reduce pressure on the balance of payments.
Despite the slowdown in GDP growth and shrunk foreign trade, the growth in public revenues was positive in 2015. This was ensured by the active use of the National Fund for fiscal needs, and a drastic increase in tax revenues in Q4 2015. A similar effect was produced by the devaluation's positive influence on tax payments from major taxpayers, in particular raw material exporters. The maintained positive growth in public revenues and the active measures to consolidate and optimise expenditure helped to significantly limit budget deficit at the year-end.
EDB experts assess that 2016 will be difficult for Kazakhstan: the low growth of the global economy, the slow recovery of the country's main trade partners, and the persistent low oil prices will not help the economy. However, processing, construction and some service sectors will receive a certain impetus for development through the transition to flexible exchange rates and the country's improving competitiveness in foreign markets. Other favourable factors include Kazakhstan's joining the WTO, some structural public reforms, including those to strengthen the private sector, and the economy's stimulation with anti-crisis measures, which will help to support the population's incomes and investment activity.
Despite the improving competitiveness, it is still probable that the current account will have a deficit, due to limited opportunities for export expansion and high demand for imports. However, the significant international reserves will help to maintain external stability at a high level. Public finance may improve in 2016, supported by the current measures to optimise public expenditure and revenues. High inflation rates may persist throughout the first six months of 2016. In the second six months of the year, however, they are expected to go down under the influence of tough monetary policies, limited domestic demand, and external deflation factors.
The full version of The CIS Macromonitor will be published in March 2016.
Additional Information about the Bank:
Eurasian Development Bank (EDB) is an international financial institution founded by Russia and Kazakhstan in January 2006 with the mission to facilitate the development of market economies, sustainable economic growth, and the expansion of mutual trade and other economic ties in its member states. EDB's charter capital totals US $7 billion. The member states of the Bank are the Republic of Armenia, the Republic of Belarus, the Republic of Kazakhstan, the Kyrgyz Republic, the Russian Federation, and the Republic of Tajikistan.
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